ASSESSMENT OF INTERNAL CONTROL STRATEGIES ADOPTED BY SMALL AND MEDIUM ENTERPRISES IN NIGERIA
TABLE OF CONTENTS
TITLE PAGE i
APPROVAL PAGE ii
CERTIFICATION iii
DEDICATION iv
ACKNOWLEDGEMENTS v
TABLE OF CONTENT vi
LIST OF TABLES ix
LIST OF FIGURES x
ABSTRACT xi
CHAPTER ONE: INTRODUCTION 1
Background of the Study 1
Statement of the Problem 11
Purpose of the Study 12
Significance of the Study 12
Research Questions 13
Hypotheses 14
Scope of the Study 14
CHAPTER TWO: REVIEW OF RELATED LITERATURE 15
Conceptual Framework 15
- Small and medium enterprises 15
- Internal control strategies 16
- Control environment 17
- Risk management control 18
- Internal control activities 19
- Internal control monitoring and evaluation activities 20
- Information and Communication System 21
Theoretical Framework 25
- Principal-Agent theory 25
- System theory 26
- Contingency theory 27
Related Empirical Studies 28
Summary of Literature Reviewed 38
CHAPTER THREE: METHODOLOGY 41
Design of the Study 41
Area of the Study 41
Population for the Study 42
Sample and Sampling Techniques 42
Instrument for Data Collection 42
Validation of the Instrument 43
Reliability of the Instrument 43
Method of Data Collection 44
Method of Data Analysis 44
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA 45
Presentation of Data 45
Findings of the Study 53
Discussion of the Findings 55
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS 60
Re-statement of the Problem 60
Summary of Procedures Used 61
Major Findings of the Study 63
Implications of the Findings 63
Conclusion 64
Recommendations 65
Suggestions for Further Study 65
REFERENCES 67
APPENDICES 72
A: Population Distribution of Registered Small and Medium Enterprises in
Major Towns in Enugu State 72
B: Request for Validation of Research Instrument 73
C: Letter to Respondents 74
D: Questionnaire 75
E: Reliability of the Instrument 78
F: Output of Data Analysis 84
G: Validated Copy of the Instrument
H: List of Sample of Small and Medium Enterprises in Enugu
LIST OF TABLES
Table 1: Mean Ratings and Standard Deviation of Respondents on Internal Control
Environments Strategies Adopted by SME 45
Table 2: Mean Ratings and Standard Deviation of Respondents on Internal Control
Risk Management Strategies Adopted by SMEs 46
Table 3: Mean Ratings and Standard Deviation of Respondents on Information and
Communication System Strategies Adopted by SMEs 47
Table 4: Mean and Standard Deviation of Internal Control Activities Strategies
Adopted by SMEs 48
Table 5: Mean of Respondents on Internal Control Monitoring Activities Strategies
Adopted by SMEs 49
Table 6: ANOVA Analysis of the Mean Responses of Respondents on Internal Control
Environment Strategies Adopted by SMEs based on Educational Qualification 50
Table 7: ANOVA Analysis of the Mean Responses of Respondents on Internal Control
Risk Management Strategies Adopted by SMEs based on Experience 50
Table 8: ANOVA Analysis of the Mean Responses of Respondents on Information
and Communication System Strategies Adopted by SMEs Based on Number
of Employees 51
Table 9: ANOVA Analysis of the Mean Responses of Respondents on Internal Control
Activities Strategies Adopted by SMEs Based on Experience 52
Table 10: ANOVA Analysis of the Mean Responses of Respondents on Internal
Control Monitoring Strategies Adopted by SMEs Based on Experience 53
LIST OF FIGURES
Figure 2.1: Schematic representation o the conceptual framework 2
ABSTRACT
The study was carried out to assess the internal control strategies adopted by small and medium enterprises in Enugu State. The population for the study was 1280 registered SMEs in the state. The sample size of the study is 128 managers, supervisors and accounting officers of SMEs. In line with the objectives of the study, a structured questionnaire was employed for the data collection and it was face validated by three experts. Data collected from the respondents were analysed using mean and standard deviation to answer the five research questions. Items with a mean of 2.50 and above was regarded as agreed while items with a mean rating from 2.49 and below was regarded as disagreed. Cronbach Alpha reliability coefficient formula was used to determine the internal consistency of the instrument. The results revealed reliability coefficients of 0.87, 0.93, 0.72, 0.78 and 0.87 for Clusters A to E respectively, and an overall reliability coefficient of 0.84. The Analysis of Variance (ANOVA) method was used to test the null hypotheses at 0.05 probability level of significance. Based on data analysed, it was found that knowledge of internal control system was not popular as it was poorly adopted by SME in Enugu State. Specifically, the result showed that internal control environment strategies, internal control risk management strategies and internal control information and communication strategies were not adopted by operating SMEs sampled in this study. Furthermore, it was also found that best practices in internal control activities strategies and internal control monitoring activities strategies were also not adopted by SME operators in Enugu State. Following the findings of the study, it was recommended that knowledge of internal control system should be taught in financial accounting courses of business education and more awareness on the need for risk management process should be created. In addition, effort should be made by promoters of business education study curriculum to address challenges associated with effective practice of internal control system of SMEs. Lastly, entrepreneurs should be encouraged by the government, education authorities and concern institutions to attend workshops, seminars and conferences on the internal control system.
CHAPTER ONE
INTRODUCTION
Background of the Study
The increasing importance and growth of Small and Medium Enterprises (SMEs) has been a welcome development in modern economies across the globe. The role of SMEs in job creation and its general contribution to economic welfare and growth in developing and developed countries cannot be overemphasized. Yet not many of them survive the test of time as most of such enterprises liquidate as soon as they were established. The reason goes beyond lack of fund to keep the business afloat. It includes but not limited to poorly conducted feasibility study report, poor management capacity, poor infrastructural facilities, lack of experience and requisite skills on the part of entrepreneurs and others (Aminu & Shariff, 2015). There are great potential benefits from robust and vibrant SMEs in every modern economy in the form of job creation, human capital development and economic growth. However, the process for assuring achievement of any business organization’s objectives according to Tang & Tang (2012) is through operational effectiveness and efficiency, reliable financial reporting, compliance with laws, regulations and policies. These have remained the critical issues that keep confronting SMEs especially in developing countries like Nigeria. It has been evidently displayed by the relatively poor performance of SMEs sub-sector in Enugu and other states of the federation despite huge business opportunities in the localities (Aruwa, 2004). As a result, people continued to believe federal and state civil service, oil sector, trading and politics remains the most fertile sources of livelihood in Nigeria.
According to the Organization for Economic Cooperation and Development (OECD) (2007), the distinctiveness of SMEs not only reflects the economic patterns of the country but also the social and cultural dimensions. These varying patterns are traceable within different definitions and criteria for classification of SMEs adopted by different countries. While some refer to the number of employees as their distinctive criteria for defining SMEs, others use invested capital, and some others use a combination of the number of employees, invested capital, sales and industry type (Eniola & Ektebang, 2014). Anga (2014) conceptualised SMEs as firms with relatively small share of their market place; one mostly managed by owners or part owners in a personalised way, and not through the medium of a formalised management structure; and one which maintains independent, in the sense of not forming part of a large enterprise. Similarly, Ebiringa (2011) defined SMEs to include firms with fixed assets (excluding land) less than US$ 250,000 in value. It also included firms with less than 50 employees and at least half the output is sold respectively. The National Council of Industries defined SMEs as businesses whose total costs excluding land is not more than two hundred million naira (N200, 000,000.00) only (Onugu, 2005). Although there is no clear distinction between what is a small or medium business, SMEs are defined in this study as business enterprises with a labour size of 11-300 workers and whose total cost including working capital is not more than 200 million naira, but excluding cost of land.